Income Protection: Bitter pill?

I don’t normally write about insurance, as I am not an expert.Coins gold

BUT, what I do know is that a person’s ability to earn a dollar is their biggest asset.

You are never too young to think about it either, I met a man whose girlfriend is in her 20’s facing cancer, the kind that has ability to create a huge loss.

You are can be too old, but not until you reach retirement, or a at point where you can support yourself even if you couldn’t work again.

Income Protection insurance is one of the ways that you can protect your biggest asset, and there are other ways that complement it, which will be explained by an insurance adviser when asked.

The biggest complaint I hear about income protection, and actually personal insurance in general is the cost.  Overseas i.e. not in New Zealand, there is a lot less protection for the individual provided by the Government, the USA is a good example of this, and they take for granted the need for personal insurance.  Here it is a different story, between ACC and WINZ we have a lot more cover than most countries.

If you value your way of life, the amount of disposable income you have, income protection is worth a look, it will be another cost to living, but what is worst, living without your income, or sacrificing a little in the meantime…

Finding a good insurance adviser can be a tough ask,  so here are some questions to ask:

  1. What sort of authority do you have to provide me with insurance?
  2. Can you provide me with options from more than one insurance provider?
  3. Are you going to give me balanced advice with options?
  4. How do you earn money from me and do you get paid year after year even if you don’t contact me for a review?
  5. Can I have your Disclosure Statement?

These are just a start, but a good adviser will let you know the answers to these and other questions when you meet, happily and willingly.  If you think you are not being listened to, try somewhere else. You need to be able to trust them, if you can’t the relationship won’t work.

If you want to check the details of the insurance/financial/investment adviser you can check them out on the Government website: www.fspr.govt.nz or check out the Financial Markets Authority website www.fma.govt.nz.

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Parity party an opportunity for reflection: NZ Initiative

Dr Oliver HartwichDr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz

The Reserve Bank of Australia’s surprise decision not to cut interest rates only postponed the expected “parity party” between the Kiwi and the Aussie dollars. The way things are going, it is a matter of time until both currencies are of equal value.

The currency development leaves politicians and commentators divided. On Wednesday, The New Zealand Herald was jubilant (“Transtasman parity worth a celebration”) whereas the Waikato Times played the party-pooper (“Dollar parity bad news”).

Unsurprisingly, Prime Minister John Key claimed the strong Kiwi as an indication of a strong economy while his counterpart, Labour leader Andrew Little warned of negative side effects of our strong dollar.

With so much disagreement on the interpretation of a rather technical event, who is right in their assessment of the parity party?

The truth is that they are all right in their own ways. At once, the strong Kiwi is a blessing and a curse, a development to celebrate and to be concerned about. It entirely depends on your perspective.

Obviously, for importers of Australian goods as for New Zealanders holidaying in Australia, parity makes life cheaper. Conversely, exporters trading with Australia will experience business conditions get tougher. That is the very nature of exchange rate movements. They always create winners and losers, parity or not.

So it is futile to discuss parity under the heading of whether it is good or bad for individual people or businesses. It always depends on their individual circumstances.

What makes much more sense to reflect upon is what parity with the Australian dollar says about New Zealand – and what it does about Australia.

It is a tale of two different countries. And it is a tale of a major role reversal.

Until just a couple of years ago, New Zealand was worried about a large migration loss to Australia. The grass seemed greener on the other side of the ditch, and many Kiwis were lured by better economic prospects in Australia.

What has happened since then is the end of Australia’s mining boom, coupled with political mismanagement in Canberra. That is one side of the equation.

On the other hand, New Zealand was fortunate to see a surge in demand for its exports. Plus, we have benefited from sound political management which brought us the free trade agreement with China (thanks to the previous Labour government) and a focus on fiscal prudence (thanks to the current National government).

Perhaps parity with the Aussie dollar should be an opportunity to reflect on how fortunate New Zealand has been with its political leadership (certainly compared to Australia). And it should also be a reminder that no good economic run should ever be taken for granted. Just ask the Australians.

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Celebrate Life: Happy Easter: Be Safe

Gilchrist childrenAt this time, when most are taking a long weekend off, please remember to be safe on the roads and wherever you are travelling, let us all celebrate those closest and dearest to us and take this time to celebrate life, together.

For those of us in the Bay of Plenty we are having a horror year on our roads, and with the wet weather set to continue please be careful, be patient. This was driven home by a letter from the Police to all those involved at my children’s school, they are interested in our safety so they are going to patrol our horror SH 2 more than ever.

You may think this a strange message from financial advisers, but that is just it, we are interested in you, you staying alive long enough to enjoy your hard earned savings, we want your family to be together, not arranging a funeral.

For the sake of your family, be careful out there.

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Socially Responsible Investment and NZ Managed Funds

fund-source-logo30 Mar 2015 15:23

As KiwiSaver account balances grow and New Zealand investors become increasingly interested in where their savings are invested, more interest may be shown in socially responsible investment (SRI). A number of New Zealand fund managers offer SRI options. This article will look at the basic terminology used and the different kinds of options available to investors.

SRI is an investment process that considers environmental, social and governance (ESG) factors. This means that rather than simply looking at the potential return of an asset, an investor will take into account the effect their investment will have on the environment and society and whether the corporate governance of the company also considers these factors. Fund managers are able to show their engagement with ESG issues by signing the United Nations Principles for Responsible Investment. The six principles represent a voluntary commitment to take ESG factors into account during the investment process. A number of New Zealand fund managers are signatories to the principles including Devon Funds Management, Harbour Asset Management and Salt Funds Management.

A common way to invest responsibly in practice is to exclude certain industries entirely. These industries, often referred to as ‘sin stocks’, include alcohol, tobacco, pornography, gambling and armaments. A number of New Zealand managers that offer SRI funds try to exclude certain industries from these particular portfolios. For example, specific SRI funds are offered by AMP Capital, Grosvenor Investment Management, Pathfinder Asset Management and Quaystreet Asset Management. As investor appetites change, so do the industries that are considered ‘sinful’. For instance, Grosvenor and Hunter Hall (an Australian fund manager) have both recently removed direct exposure to fossil fuels in their SRI funds.

The different ways in which managers can take ESG factors into account means that definitions necessarily differ from manager to manager. At one end of the spectrum is ‘deep green’ investing. Rather than simply excluding industries that are perceived as having negative social and environmental impacts, deep green investing means actively seeking out investments that can have a decidedly positive impact. Although Hunter Hall offers a deep green fund, this investment style is relatively absent from New Zealand. Grosvenor attributes this to “hypocritical discomfort” where investors do not want to acknowledge the ways they ignore ESG factors as consumers.

Finally, there is discussion around the extent that socially responsible investing affects investment returns. Some analysts argue that limiting the investable universe of a fund can decrease fund returns and increase volatility. Others claim that actively managed SRI portfolios can offer strong returns.

There are a number of SRI options available to New Zealand investors. These include KiwiSaver funds and non-KiwiSaver unit trusts. For more information about the SRI exposure of your portfolio, talk to an Authorised Financial Adviser.

– See more at: FundSource

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Things a Financial Adviser can help you with No. 6 – Goals

How do you define success?  What are your expectations of your life?

You wont be happy at destination if you cant be happy on the journeyGoals don’t necessarily have to be about an end, they can be about stops on the journey, and lets face it, life is more of a journey than a destination.

As financial advisers we need to be good at listening, good at listening to you.  You may not know what your “goals” as such are, but if we listen hard enough we can begin to draw a picture of what you are expecting from your journey and how we may help you achieve those expectations along the way, to be successful.

Success is not always having a result that the rest of the world can see, or even achieving a goal of meeting an expectation, for most people it is an overall knowledge that they got want they wanted out of life and were able to give back what they wanted also.

Success can be all sorts of things, and often a few things in a list, such as:

Diamond Princess

Diamond Princess

  • taking the holiday of a lifetime
  • leaving a financial legacy to a family and/or charity
  • leaving a family that know the meaning of love and are known for it
  • being able to buy the motor-home and travel
  • being able to provide a comfortable retirement
  • being able to pay rest-home fees without destroying value in the family home
  • having grandchildren/family to spoil and being able to spoil them

Whatever you define as success, make sure you are asked the right questions and then you are listened to.  It is your money, to achieve your success.

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What should I ask a Financial Adviser?

The article below is available on the website of the FMA (Financial Markets Authority).  There aim is to educate the general public on what you need to know, as well as monitoring the Financial Markets in NZ.  If this helps you, please let us know…  

Choosing your adviser is an important personal matter. Do some research and consider talking with a few advisers before you decide which one to work with.

We’ve developed some questions you can ask financial advisers, and we offer some ideas about what to listen for. If you are receiving personalised investment advice, you should be able to find some of this information in an adviser’s disclosure statement. You can compare disclosure statements from advisers.
Before choosing your adviser, ask several financial advisers as many questions as you need to until you’re confident you completely understand how they can help you.

  • Advice type
  • Adviser type
  • Puts client’s needs first
  • Reasonable fees
  • Professional standards
  • Professional experience
  • Dispute resolution

Advice Type

Q: What type of advice or service do you provide?

Listen for: Whether the service is information only (information is not considered advice), class advice, or personalised advice. Personalised advice is tailored to your own situation, and class advice is suitable for most people in a group or class. See our information and the different types of advice to help give you a better understanding.

Adviser type

Q: What type of financial adviser are you?

Listen for: AFA (Authorised Financial Adviser) or QFE adviser if you want personalised investment advice. Both these types of advisers have been licensed, and are monitored, by the Financial Markets Authority. Ask them what types of products they are licensed to advise you on as there are different categories of AFA and QFE licence.

If they are a registered financial adviser individual, or work for a registered financial adviser entity, (but are not an AFA or QFE) they are not licensed or monitored by the Financial Markets Authority. Registered individuals can give you personalised advice on simpler products such as insurances, mortgages and term deposits. Registered individuals or entities can provide you with ‘class’ or generic advice on investment products such as KiwiSaver or managed funds.

Find out more about types of financial advisers and kinds of financial advice.

Q: Do you have any adviser qualifications?

Listen for: A description of how their qualifications relate to the financial services they provide. For example, an AFA is required to meet a minimum level of competence set out in their Code of Professional Conduct.

Puts Client’s Needs First

If you are looking for personalised advice, consider asking:

Q: What information will you need to be able to provide me with financial advice that is tailored to suit me?

Listen for: Lots of questions about your circumstances and needs. For instance, they should ask about your income and expenses, what you own and what you owe, your dependants and your financial goals, both short and long term and your appetite for risk. They should discuss your insurance needs and things such as estate planning or business succession planning if these topics are relevant to you.

Q: How will you deal with a range of different financial objectives for my individual goals?

Listen for: Will help you prioritise your financial objectives, explain and discuss choices with you and develop a strategy to help you achieve your objectives.

Q: Am I a retail or wholesale investor?

Listen for: Wholesale investors are defined in the Financial Advisers Act and can include entities such as family trusts. Your adviser needs to explain what a wholesale investor is and whether you are regarded as one. Wholesale investors have less protection than retail clients, so you need to understand the implications of being a wholesale investor. You can opt out of being a wholesale investor if you wish.

If you are looking for generic or ‘class’ advice, consider asking:

Q: What ‘class’ or group of investors is your advice suitable for?

Listen for: A description of the general characteristics of people like you with similar circumstances and requirements. This is sometimes referred to as your ‘class’ or group that your adviser has taken into account to advise you, e.g. your age group and tolerance for risk.

Reasonable Fees

Q: How are you paid – via fees or commissions? How much is your advice likely to cost?

Listen for: If the adviser charges a fee-for-service, it is easier to know how much you are paying if it is a ‘flat dollar’ fee such as a fee for service arrangement. If a ‘percentage of assets’ fee is charged, make sure you are clear on exactly how much you are paying, when this is to be paid, or if it is an on-going fee, how often it is to be paid. Make sure they give a clear explanation of how much they expect to receive, now and in future years (regular ongoing costs). If you are receiving personalised investment advice (only available from an AFA or QFE adviser), a general description of how they will be paid will be given to you in the adviser’s primary disclosure statement. Once you’ve chosen an adviser, and they’ve made financial product recommendations, they will follow up with specific payment details in a secondary disclosure statement.

Q: If they charge ongoing fees, what will I get for these fees?

Listen for: Regular reviews of your circumstances and investment portfolio. Re-balancing of your investment portfolio if necessary. If you are paying ongoing fees, you should expect to have reasonable access to your adviser when you need questions answered or want to discuss a financial issue with them, and they should schedule regular reviews with you.

Professional Standards

Q: How do you keep up to date with changes that might affect your clients?

Listen for: Participants in regular Continuing Professional Development (CPD) or other relevant training. Is a member of an industry organisation such as: Institute of Financial Advisers (IFA), Professional Advisers Association (PAA), or SIFA.

Q: Do you have to abide by a professional code of conduct?

Listen for: AFAs should tell you about their Code of Professional Conduct. This sets out the minimum standards of competence, knowledge and skills, ethical behaviour and client care. It also specifies their continuing professional training. AFAs can be disciplined for breaches of the Code.

QFE advisers do not have to follow the Code but their QFE should have established systems and procedures at an equivalent level to the Code.

Registered financial advisers are not required to follow a code of conduct.

Professional Experience

Q: How long have you been giving financial advice?

Listen for: If they have only been giving advice for a short time, ask whether they receive supervision or oversight from a more experienced colleague or their employer.

Q: What type of clients do you mostly see? What are the majority of your clients trying to achieve?

Listen for: It’s helpful if the adviser deals with people in a similar situation to you, for example, young families, retirees or small businesses, as they will have experience in the type of advice you are looking for.

Q: What products do you advise on? What about the products I’m currently invested in?

Listen for: Is their product range restricted to a certain type of product or is it limited to products from a small number of product providers? Are they aligned with one product provider only? Can they compare different products? A bigger range of products can mean more choice for you. This could also be important for any existing products you have, such as your KiwiSaver fund or managed funds. Can they provide advice in relation to your current funds or investments, for example, even if it is not on their approved product list? If they are recommending disinvestment from any products you currently hold, make sure they tell you what the risks and benefits are in doing this.

Q: How do you establish a client’s tolerance for risk?

Listen for: Use of a risk profiling tool, for example, a comprehensive questionnaire to assess clients’ tolerance for risk (also known as a risk profile).

Dispute Resolution

Q: How do you deal with customer complaints or disputes?

Listen for: A clear description of their internal process for handling customer complaints. They must also belong to an external dispute resolution scheme if financial services are provided to retail clients, and the name of the scheme will also be in the adviser’s disclosure statement.

Link to original article, click here.

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Kiwisaver should be part of your long term savings plan

3 Good Reasons that Kiwisaver should be a part of your long term savings plan:Saving can be a tricky balancing act

  1. Untouchable (mostly): a lot of people have issues with impulse buying or credit control, which is evident in the figures of how much we are all in debt, Kiwisaver is your opportunity to hide funds away for the long term and you can’t spend them.
  2. Tax effective: because Kiwisaver uses PIE tax, you don’t need to contribute to the tax payments, it is done for you, and the maximum tax you will pay is 28%, which is lower than the PAYE top payment of 33%
  3. Employer Contribution: for employees, your employer will be contributing to your savings, what a fantastic incentive to provide for your long term needs.

Ok, so one more, you can change providers easily and it won’t cost you the earth.  You can pay an adviser for advice on who to invest with or just do it yourself, all information is readily available and reasonably easy to read.

If finances don’t interest you, pay someone to do it for you, just as you would pay someone to do other jobs you prefer not to do, like lawns!

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